Construction industry urged to study contracts to avoid disputes in the fallout from Covid-19

Industry experts are warning that the amount of leeway open to contractual obligations amid the Covid-19 outbreak is subject to a high degree of uncertainty.

Covid-19 has resulted in uncertainty for contract obligations and may lead to disputes. File picture.

The level of uncertainty around the leeway open to contractors should they fail to meet their contractual obligations as a result of the Covid-19 crisis could ultimately lead to disputes, experts in the industry have warned.

To help avoid this, the Government Contracts Committee for Construction (GCCC) should clarify how Public Works contracts can be implemented.

If this is done, it will help inform how those working in the privately funded sector react, according to Kevin Duke, director at construction consultants Duke McCaffrey.

Mr Duke and legal experts from law firm Dillon Eustace, including Kelly O’Hara, partner and head of property, and Fiona O’Neill, consultant in construction law at Dillon Eustace, have called on all parties to construction contracts to examine them with a fine-tooth comb and to satisfy themselves that their contracts reflect the circumstances in which they now find themselves.

“There are a lot of grey areas in terms of how this is going to play out,” Mr Duke said.

“At the moment parties to these contracts have to down tools but that doesn’t mean their obligation ends,” Ms O’Hara said.

The government legislation [with some exceptions] effectively says to down tools [during the pandemic] but does that allow you to go back to the developer who contracted you and seek a delay and compensation for the delay?

“And if the contract is delayed, that has a considerable knock-on effect eg on a developer who may have anchor tenants lined up but now find themselves unable to provide accommodation within an agreed timeframe.

“This is an unprecedented situation. We do not know how reasonably familiar construction contracts will be implemented in the current situation,” Ms O’Hara said.

Ms O’Neill said there was “quite a web” of people who would be affected by any amendments to contracts, including the developer/employer, construction workers, suppliers, funders, tenants.

“All of these disparate parties have agreements to which the completion date is pivotal. If contract extensions are given, it is vital that everyone is kept in the loop,” Ms O’ Neill said.

Ms O’Neill said a collaborative approach “could potentially result in a more mutually commercially acceptable and less strictly contractual and possibly adversarial response to problems arising out of a Covid-19 delay”.

“In adopting a collaborative approach, both parties to the contract would need to consider very carefully, the short and long term effects of any agreed change.

“They will need to formally and carefully document any change and consider the knock on effect of any agreed change on, for example, an associated agreement for lease, development agreement or funding arrangement.

“In addition, the prior agreement of a funder would probably be a prerequisite to any construction contract amendment,” Ms O'Neill said.

Ms O’Hara said changes in legislation being implemented now have clear public health consequences but what remains to be seen is the extent of the unintended consequences.

“The health warning heard so often these days is “wash your hands”. From the business health perspective for stakeholders in the construction industry, the current advice is “read your contract” before deciding upon next steps,” she said.